Value-Based Insurance

Here are two assertions: (1) The less something costs, the more of it you’ll buy. (2) Utilization of some prescription drugs for certain conditions can reduce use of nondrug services. Putting these two assertions together is the idea behind value-based insurance design, the reduction of copayments for some services (e.g. some drugs) for individuals with specified conditions to promote their use and obviate other types of care. The question is, do costs avoided offset the costs of increased use of services (drugs) promoted with with lower copayments?

A new paper in Health Affairs by Michael Chernew and colleagues (*) says that value-based insurance design can pay for itself, though the extent it does “will depend on the details of the program, particularly the extent to which copayment changes are clinically targeted.” Using break-even analysis, the study evaluated the reduction by a large employer in copayments for five drug classes used to treat hypertension, diabetes, high cholesterol, and asthma. Copayment reductions were available only to individuals identified as likely to benefit from the targeted classes of medication.

The authors conclude,

Our analysis suggests that it is likely that the value-based insurance program evaluated here broke even in the broadest sense—that is, when total employer and employee spending is examined, regardless of who paid. It is less likely that the program saved money from the employer’s perspective. However, some peer-reviewed evidence suggests that reductions in nondrug spending by program participants may be large enough for the program to break even from the employer perspective.

As the authors note, there is a distinction between a “cost-effective” and a “cost-saving” intervention. The former describes one that produces a substantial amount of health. The latter describes one that offsets other services to the point of paying for itself. Most interventions are at best cost-effective. Very few are cost-saving, which is why one should be skeptical of claims that a new treatment will reduce health care costs.

Also noted is the fact that most evaluations, including their own, understate the benefits of value-based insurance design because they do not consider other savings attributable to better health such as “fewer disability days, less absenteeism, and greater worker productivity.”

Study of value-based insurance designs is relatively new and the work of Chernew, et al. is among the first to suggest that they might be cost-saving. To the extent that researchers identify cost-effective, or better, cost-saving, interventions, the future of health insurance plans will include value-based designs. If and when they do a more appropriate name may be “health incentive plans.”

(*) I mean no disrespect to the other authors. It is just too long a list to include in a sentence: Michael E. Chernew, Iver A. Juster, Mayur Shah, Arnold Wegh, Stephen Rosenberg, Allison B. Rosen, Michael C. Sokol, Kristina Yu-Isenberg, and A. Mark Fendrick.